Botched Facebook Stock Trades Draw Regulatory Review
In the latest chapter of Facebook's trading saga, market participants were informed on Monday that regulators at the Financial Industry Regulatory Authority (FINRA) will be stepping in to oversee a process that will attempt to reconcile Friday’s botched trades.
According to an alert sent Monday to traders, the review will center on a period of trading on Friday between 11:11 a.m. and 11:30 a.m., during which time investors did not receive order confirmations for trades accounting for some 30 million shares. The review could span as late as 2 p.m. on Friday, since confirmations came from Nasdaqin a steady trickle throughout the afternoon, according to a person familiar with the matter.
In some cases, that paperwork, seen as vital to trading books, was not received until late Sunday or early Monday, according to investors and a person familiar with the matter.
Despite a system freeze and some glitches surrounding the open, Nasdaq spokesman Joe Christinat maintains that “100 percent of our confirmations were completed by 1:50 p.m. on Friday,” which raises questions as to why some of those receipts were significantly delayed — potentially signaling further hold-up at the broker-dealer or bank level.
In addition to FINRA’s involvement, officials from the Securities and Exchange Commission and several entities at the Nasdaq will be cooperating to establish a full review process surrounding Friday’s glitches.
Ultimately, Nasdaq may have to foot the bill for some of the errors, depending on FINRA’s findings. Traders were informed that Nasdaq would have “sole discretion” over determining the total amount of any accommodation pool, which would include any “unintended gains” resulting from some of Friday’s transactions.
Facebook set a record on Friday as the most traded initial public offering in U.S. history, a surge which overloaded Nasdaq’s computer systems, leading to a momentary freeze in pre-market trading and additional glitches once trading was underway. In the wake of those issues, the Nasdaq has said it will look to revamp the process by which IPOs begin trading.
Friday’s problems were seen by many investors and market participants as a substantial psychological hit to many of Facebook’s new investors, prompting some to dump uncertain positions, putting downward pressure on shares which closed only slightly higher — despite massive support from lead underwriter Morgan Stanley .
On Monday, Facebook shares plummeted out of the gate, ending the day down 11 percent.
FINRA and Facebook declined to comment.
-By CNBC's Kayla Tausche and Jesse Bergman
@kaylatausche & @JBergmancnbc
